A resolution introduced in the U.S. House over the summer could mean major savings for Veteran homebuyers and homeowners if Congress ultimately gets on board.
The resolution from Rep. Blaine Luetkemeyer (R-Mo.) calls on lawmakers to stop funding Veterans’ benefits on the backs of other Veterans. In recent years, Congress has hiked fees associated with some benefits – primarily the VA loan program – to pay for other Veteran benefit programs.
Introduced in late July, House Resolution 612 urges the House to publicly recognize that “Veterans should not be used as the ‘pay-for’ to support veterans’ benefits” and to oppose legislative efforts to raise or introduce new fees that Veterans have to pay to access their benefits.
“We owe our Veterans support, gratitude, and at the very least, the financial benefits they’ve earned through their years of service,” Rep. Luetkemeyer said in a statement. “Applying additional fees impedes the purpose of helping to level the playing field for service members who missed opportunities to save, pursue college or otherwise get ahead professionally and financially.”
Funding fee controversy
Congress’ use of the VA Funding Fee to pay for Veteran benefits has raised the ire of Veteran service organizations and other groups on Capitol Hill. This governmental fee applies to most VA loans and now ranges from 0.5 to 3.3% of the loan amount.
Earlier this year, funding fees fell back to pre-2020 levels, after Congress passed a temporary increase to help pay for disability benefits for a group of Vietnam-era Navy Veterans.
Most Veterans finance the funding fee into their loan rather than pay it in cash at closing. Higher funding fees often mean homeowners wind up underwater on their new mortgages for longer. That can make relocation difficult, particularly for active duty service members.
The funding fee decrease this spring didn’t necessarily look big on paper – the fee for first-time users of the benefit dipped back to 2.15% from 2.3%, while the subsequent use fee returned to 3.3% from 3.6%.
But those cuts alone will save Veteran homebuyers more than $200 million over the life of their loans.
“We are very grateful to Representative Luetkemeyer for his efforts to bring attention to this important issue,” said Patrick Cox, chief production officer at Veterans United Home Loans, the country’s largest VA lender. “Keeping the VA Funding Fee costs from escalating is vital for the long-term sustainability of the VA loan program. It’s a very important focus of ours to keep the VA loan affordable for our Veterans and military families who have sacrificed to great lengths for our country.”
Significant potential savings
The funding fee primarily helps the VA pay claims to lenders when a Veteran defaults on their loan. At least one study has suggested that Congress could lower the fees substantially – to more in the neighborhood of 1.32% – and still cover the VA loan program’s losses and operating costs.
VA Funding Fees were slated to fall more in that range a decade ago. Legislative plans called for the first-time use fee to settle at 1.4% and the subsequent use fee to drop to 1.25%. But those lower fees never materialized because Congress continued to extend the higher fees.
The savings differential between those would-be fees and today’s rates is stark, not just in what Veterans finance up front but what they pay in additional interest over the life of their loan.
On a $400,000 purchase, the funding fee for repeat buyers comes out to $13,200 with the current 3.3% rate. At 1.25%, that cost drops to $5,000, which winds up saving buyers who finance the fee about $18,000 over their mortgage term at today’s interest rates.